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Anatomy of a fair-lending exam: the uses and limitations of statistics

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  • Paul S. Calem
  • Stanley D. Longhofer
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    Abstract

    In this paper, we consider the role of statistical analysis in fair lending compliance examinations. We present a case study of an actual examination of a large mortgage lender, demonstrating how statistical techniques can be a valuable tool focusing examiner efforts to either uncover illegal discrimination or exonerate an institution so accused. Importantly, our case also highlights the limitations of such statistical techniques. The study suggests that statistical analysis combined with comparative file review offers a balanced and thorough approach to enforcement of fair lending laws.

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    File URL: http://www.federalreserve.gov/pubs/feds/2000/200015/200015abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/2000/200015/200015pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2000-15.

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    Date of creation: 2000
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    Handle: RePEc:fip:fedgfe:2000-15

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    Related research

    Keywords: Discrimination in mortgage loans ; Bank examination;

    This paper has been announced in the following NEP Reports:

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    1. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    2. David Horne, 1997. "Mortgage Lending, Race, and Model Specification," Journal of Financial Services Research, Springer, vol. 11(1), pages 43-68, February.
    3. William C. Hunter & Mary Beth Walker, 1995. "The cultural affinity hypothesis and mortgage lending decisions," Working Paper Series, Issues in Financial Regulation 95-8, Federal Reserve Bank of Chicago.
    4. Eric Rosenblatt, 1997. "A Reconsideration Of Discrimination In Mortgage Underwriting With Data From A National Mortgage Bank," Journal of Financial Services Research, Springer, vol. 11(1), pages 109-131, February.
    5. Mitchell Stengel & Dennis Glennon, 1999. "Evaluating Statistical Models of Mortgage Lending Discrimination: A Bank-Specific Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 299-334.
    6. Geoffrey M.B. Tootell, 1993. "Defaults, denials, and discrimination in mortgage lending," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-51.
    7. Day, Theodore E & Liebowitz, S J, 1998. "Mortgage Lending to Minorities: Where's the Bias?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 3-28, January.
    8. Lynn Elaine Browne & Geoffrey M.B. Tootell, 1995. "Mortgage lending in Boston: a response to the critics," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 53-78.
    9. Robert Avery & Patricia Beeson & Paul Calem, 1997. "Using HMDA Data as a Regulatory Screen for Fair Lending Compliance," Journal of Financial Services Research, Springer, vol. 11(1), pages 9-42, February.
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